In an effort to identify specific cis-acting sequences and trans-acting factors that regulate DNA replication and gene expression at the beginning of mouse development, we have previously microinjected plasmid DNA into the nuclei of oocytes, fertilized eggs and 2-cell embryos and then measured the ability of these cells to either replicate the DNA or express a reporter gene. This work led to the discovery of a novel transcription factor, mTEAD-2, that is expressed at the onset of zygotic gene expression (ZGE) where it is capable of strongly stimulating transcription from promoters or enhancers that contain its sequence-specific binding site. mTEAD-2 is the only member of the TEAD family of transcription factors that is expressed in mouse embryos during the first 7 days of their development. We identified the long sought after co-activator of the TEAD family of transcription factors as YAP65. YAP65 interacts specifically with the C-terminus of all four TEAD proteins. Both this interaction and sequence-specific DNA binding by TEAD were required for transcriptional activation in mouse cells. Intriguingly, while TEAD is concentrated in the nucleus, YAP65 accumulates in the cytoplasm as a complex with the cytoplasmic localization protein, 14-3-3. Since TEAD-dependent transcription is limited by YAP65, and YAP65 also binds Src/Yes protein tyrosine kinases, we propose that YAP65 regulates TEAD?dependent transcription in response to mitogenic signals. Our current goals are to identify the factors that regulate mTEAD-2 gene expression, to elucidate mechanisms by which mTEAD-2 regulate gene expression, and to identify the role of mTEAD-2 in mammalian development. Investigation of the regulatory region of mTEAD-2 led to the surprising discovery of another gene only 3.8 kb upstream of mTEAD-2. This new gene is a single copy gene called Soggy (mSgy) that is transcribed in the direction opposite to mTEAD-2, thus placing the regulatory elements of these two genes in close proximity. Soggy (Sgy) and Tead2, two closely linked genes with CpG islands, were coordinately expressed in mouse preimplantation embryos and embryonic stem (ES) cells, but were differentially expressed in differentiated cells. Analysis of established cell lines revealed that Sgy gene expression could be fully repressed by methylation of the Sgy promoter, and that DNA methylation acted synergistically with chromatin deacetylation. Differential gene expression correlated with differential DNA methylation, resulting in sharp transitions from methylated to unmethylated DNA at the open promoter in both normal cells and tissues, as well as in established cell lines. However, neither promoter was methylated in normal cells and tissues even when its transcripts were undetectable. Moreover, the Sgy promoter remained unmethylated as Sgy expression was repressed during ES cell differentiation. Therefore, DNA methylation was not the primary determinant of Sgy/Tead2 expression. Nevertheless, Sgy expression was consistently restricted to basal levels whenever downstream regulatory sequences were methylated, suggesting that DNA methylation restricts but does not regulate differential gene expression during mouse development.